Ride The Wearable Wave – WEAR ETF (BATS:WEAR)

4 weeks ago

In light of recent market volatility and fears among investors of a short-term correction, I’ve decided to highlight the WEAR ETF (BATS:WEAR), as I believe that the wearable technology industry represents an excellent long-term buy and hold opportunity.

Over the past few years, wearable technology has become increasingly ubiquitous in society, with the Apple Watch (NASDAQ:AAPL), Fitbit (NYSE:FIT), and GoPro (NASDAQ:GPRO) all gaining popularity as the next step in technology innovation. The wearable tech market is projected to reach $57 billion by 2022, with a CAGR of 16.2%. Wrist-based devices, like the aforementioned products, will likely continue to dominate this market, but emerging segments like virtual reality, augmented reality, and medical wearables will continue to expand the wearables market as a whole and drive growth for the companies producing them. Through the WEAR ETF, investors can buy this fast-growing industry and profit from its rapid expansion.

WEAR: Tracking the Industry

The WEAR ETF is a fund tracking the performance of the EQM WearablesTM Index, with roughly 80% of its total assets invested in securities of the index. The ETF has net assets of $927k and has posted returns of 25% YTD. It invests in companies developing, producing, and/or selling wearable technology devices and systems as well as components of these devices. The fund has been driven by a number of companies that have performed quite well in 2017, particularly in the realm of wearable medical technology.

Insulet (PODD), one of the top performers, specializes in medical devices and sells its OmniPod, an insulin delivery system. Abbott Laboratories (ABT), a large healthcare company, develops similar accessories for diabetics intended to monitor blood and glucose in patients.

iRhythm Technologies (IRTC) also develops wearable devices for medical purposes. Its ZIO platform monitors heartbeat patterns and collects data to allow physicians to diagnose arrhythmias quickly and efficiently. In doing this, patients can receive necessary medical attention earlier, immediately treating heart issues and preventing more serious conditions in the future. This technology will become increasingly important in solving the epidemic of heart problems among Americans today.

Axon Enterprise (AAXN) produces conducted electrical weapons such as tasers. However, in recent years the company has diversified to specialize in wearable cameras and the accompanying systems. Axon has grown as many police departments have moved to mandate that officers wear body cameras while on duty. Axon provides the recording devices themselves as well as cloud-based systems for storing, managing, and sharing evidence captured by the cameras.

The ETF also holds shares of more well-known companies invested in the wearables industry such as Apple, Fitbit, Garmin (GRMN), and LG Display Co. (LPL). All four of these companies offer some of the most popular smartwatches on the market and experienced strong growth in this segment in 2017.

Wearables Poised for Growth

Every year, Nokia’s (NYSE:NOK) Bell Labs releases prizes to innovators “changing the game” in the fields of information and communications technologies. In 2017, two out of the three prize winners developed innovations in the realm of wearable technology. $50,000 was awarded to a team developing photosensitive polymer materials suited for wearable devices equipped to monitor through the skin. Another $50,000 was awarded to a team researching 3D-printed batteries for use in wearable devices. Innovations in wearable technology are at the forefront of technological research, and companies like Nokia have begun to recognize their importance for the coming generations of tech products.

Over $3 trillion is spent every year on healthcare in the United States. Companies like Alphabet (GOOG), Apple, and Microsoft (MSFT) have been hard at work acquiring startups in the health and biotech industries, particularly companies that develop smartphone apps using sensors to monitor health vitals and detect issues such as mental illness and even cancer. Right now, popular wearable devices offer excellent fitness and activity tracking capabilities, tying into the themes of increased health monitoring that are driving wearables forward. The smartwatch market alone is expected to reach almost $18 billion by 2022, with a CAGR of 20%. However, the potential for wearable tech applications is limitless. Product lines are poised to expand from watches to include smart glasses, smart clothing, and even hearable technology. Apple and Samsung (OTC:SSNNF) are rumored to be developing tether-free watches, possibly signaling the replacement of smartphones altogether as technology continues to improve.

Ride the Wearable Wave

While medical wearables have propelled the WEAR ETF forward over the past year, wearable technology has potential applications from consumer and fitness to industrial and defense. Rapid advancements in research and development worldwide will propel the market forward. Companies will pour money into technological development in an effort to gain market share. Soon, due to the multi-functionality of smartwatches, people will prefer them to traditional watches, and such technology will become ubiquitous.

The only significant threat to the growth of the industry is the high manufacturing cost of wearable tech products. The cost of development, marketing, and distribution also adds to the cost of production, and this has resulted in high costs for consumers. This trend will continue for the near future. However, I believe that increasing competition in the industry will drive these costs down in the long-term. With large tech companies, small start-ups, and clothing manufacturers all competing for customers and market share, costs will begin to come down.

Given the market volatility of the last few weeks and fears of a potential correction in light of increased inflation and interest rates, I want to reiterate the importance of buying and holding strong securities for the long-term and waiting out downturns rather than trying to beat them. The wearable technology industry represents a growth opportunity for the long-term; while the industry is expected to grow at a rapid rate in the short-term, it will be nearly unaffected by short-term corrections or downturns should investors buy and hold the industry.

Conclusion

The wearable technology industry is poised to explode in the coming years as technology continues to improve and the number of applications continues to expand. The WEAR ETF offers investors an opportunity to profit off of the incredible growth in this industry, with exposure to wearable applications from smartwatches to insulin delivery and monitoring systems. The wearable industry, and WEAR offer an excellent long-term growth opportunity for investors bullish on wearable technology and its increasing presence in society.

Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in WEAR over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.